Rent Seeking and Endogenous Income Inequality

Paul Wade and Era Dabla-Norris

No 2001/015, IMF Working Papers from International Monetary Fund

Abstract: This paper studies the relationship between wealth inequality and occupational choice between rent-seeking and production. With imperfect credit markets and a fixed cost to rent-seeking, only wealthy agents choose to engage in rent-seeking as it enables them to protect their wealth from expropriation. Hence, initial wealth determines occupational choice and aggregate economic activity. The model also generates an unequal wealth distribution endogenously through fair gambles undertaken voluntarily, despite agents being identical ex ante. If agents have an altruistic bequest motive, income and occupational differences can be perpetuated from generation to generation.

Keywords: WP; rent seeker; rent seeking; expected return; income inequality; lotteries; marginal utility; expected rent; production show; seeker's input; utility function; number of rent; Income; Consumption; Income distribution; Civil service; Europe (search for similar items in EconPapers)
Pages: 29
Date: 2001-02-01
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Citations: View citations in EconPapers (6)

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